Appellate Court Clarifies Obligation Of Corporations To Make Out-Of-State Records Available For Inspection By Shareholders
LGC Staff
Sat July 2, 2016
6:31 PM UTC
Richard J. Reese

By Richard J. Reese

The California Corporations Code includes several provisions related to the creation, storage, and inspection of corporate records.  For example, Corporations Code section 1601 states that corporations must make certain records, such as accounting books and minutes from board and committee meetings, available to shareholders upon written demand, subject to certain limitations.

In a recent decision by California’s First District Court of Appeal, the Court addressed whether a corporation must make records that are stored in another state available for inspection in California.  In Innes v. Diablo Controls, Inc., Plaintiffs were shareholders of the Defendant corporation.  Plaintiffs submitted a written demand to inspect Defendant’s business and accounting records.  The demand requested that Defendant make the records available for inspection at its California office, but the requested records were located at Defendant’s Illinois office.

Defendant shipped certain records to California to make them available for Plaintiffs to inspect.  Plaintiffs found the records shipped to California to be incomplete and petitioned the Court to compel Defendant to make additional records available for inspection in California.  Plaintiffs argued that Defendant’s failure to make all requested records available for inspection in California violated Corporations Code ection 1601.  Defendant opposed the petition, arguing that Section 1601 only obligated Defendant to make the records available for inspection at the Illinois office at which they were kept.

In a previous case, Jara v. Suprema Meats, Inc., (2004) 121 Cal.App.4th 1238, the First District Court of Appeal had ruled that a corporation that keeps its records in California need only make its records available to shareholders at the office where the records are kept.  The Plaintiffs in Innes contended, however, that the Jara holding did not apply to records maintained out of state.  They argued that out-of-state records must be made available for inspection in California.  The Court disagreed and ruled that Section 1601 records need only be made available for inspection at the office where the records are kept, even if the records are kept outside of California.

Notably, the Court mentioned that other sections of the Corporations Code may require specific documents, such as bylaws, to be kept in a California.  The Court’s analysis highlights the complexity of the Corporations Code and the importance of compliance with statutes regarding record creation, retention, and inspection.  For more information regarding such compliance, contact Rich Reese in LGC’s San Diego office.

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